There is massive confusion today in economics about the
meanings of "economic scarcity" and "insufficiency." We need to address this because confusing the
two leads to some very, very, very
bad decisions.
Economic scarcity means that at X point in time, a fixed
amount of everything exists, and that you cannot use the same resource in two
things or places at the same time.
That's it. Period. It says nothing about how much X existed a
moment prior, or will exist a moment later.
It is, however, the basis for the statement that, in economic terms (an
important qualifier) “everything is scarce.”
What economists have done, however (thanks to the flawed theories
of the Reverend Thomas Malthus) is say that because
human wants and needs can never be satisfied, and because in everything is scarce, there can never be enough to go
around.
There are two logical flaws in such thinking. One, human wants and needs can be satisfied. The whole theory of marginal utility is based
on that assumption, and it appears to be true.
Every additional unit of something you obtain or use (absent some mental
aberration) gives less satisfaction until the final unit adds zero or negative
satisfaction. At that point the normal
person will stop.
Two, the important qualifier “in economic terms” is almost
always omitted, and the popular sense of “scarcity” meaning “insufficiency” is
thereby implied.
Economic scarcity is not, however, the same as
insufficiency. First, of course, under
population pressure, people tend to become more productive, as Jane Jacobs
pointed out. Second, people also become
more creative, inventing or discovering substitutes for insufficient
resources. Third, they tend to engage in
what R. Buckminster Fuller termed “ephemeralization,” or “doing more with
less.” Finally, people tend to develop
technologies to carry out the ephemeralization and do more with less in the
most efficient manner possible.
Unfortunately, what happens and creates the illusion of
insufficiency is that as technology replaces human labor and workers are unable
to replace labor income with capital income, consumptive capacity (“demand”)
becomes concentrated in the hands of those who own capital. Those who have only labor are unable to
produce. Unable to purchase what others
produce with capital with what they are unable to produce with their labor
(Say’s Law), consumption and production are thrown out of sync.
Kelso pointed out that if all new capital were to be
financed out of future savings (the present value of future increases in
production) instead of past savings (the present value of past cuts in
consumption), and if people who currently have only their rapidly depreciating
labor to sell can finance capital acquisition using future savings, production
and consumption will once again be connected, and the illusion of insufficiency
dispelled.
This will have the added benefit of reducing population
pressure and thus demands on insufficient resources. Poor people tend to have many children. Middle classes tend to increase slowly and
remain stable over time. The rich often
fail to reproduce. Fuller believed this
to be a compensating mechanism inherent in nature; others think it may be
psychological, but it does, in fact, happen.
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